26th International Conference of the TOC Practitioners Alliance - TOCPA www.tocpractice.com
19-20 May 2016, Fukuoka, Japan
Laying the foundations for Operational Excellence Oded Cohen Israel TOC Strategic Solutions 19 May 2016
Oded Cohen Oded has over 35 years of experience in developing, teaching and implementing TOC methodology, solutions and implementation processes working directly with Dr. Goldratt all over the world. Among the countries to which Oded brings his expertise are the USA, Canada, Japan, India, China, the UK, Poland, Russia, Ukraine, Colombia, Chile, Peru, Turkey and many others. Oded has authored multiple TOC contributed to numerous TOC books.
articles
and
Oded in the is the author of Ever Improve – A Guide to Managing Production the TOC Way, published in June 2010. Oded co-authored the book Deming & Goldratt: The Theory of Constraints and the System of Profound Knowledge – The Decalogue. Together with Jelena Fedurko Oded has co-authored the book Theory of Constraints Fundamentals. Oded is International Director of TOC Strategic Solutions Ltd and Founder and Co-President of TOCPA. www.tocpractice.com
[email protected] www.toc-strategicsolutions.com
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Why Operational Excellence? Every Organization is built for a purpose The Purpose is determined by the owners of the system When the purpose is expected to have “More” now and in the future – the ability to grow depends on the Competitive Edge of the organization. The ability to develop Competitive Edge is enhanced when the organization has Operational Excellence www.tocpractice.com
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What Does TOC Offer? TOC provides Focused approach to managing Flow Systems TOC is based on managing the system through its Constraint(s) TOC Provides managerial tools for proper transparency of what is happening in the system and where to focus in order to move forward TOC has a set of proven solutions for achieving Operational Excellence www.tocpractice.com
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What is Operational Excellence? Operational Excellence Includes: Clear Goal A set of Service Levels with Desired Targets Measurements (Financial, Service Levels and Necessary Conditions) Decision Making Processes Planning Execution Control Continuous Improvement - POOGI
All to provide a strong base for a Market Offer www.tocpractice.com
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Is Operational Excellence Enough? Many times – Yes! Some times – may bring to stagnation on a higher level (alas with stronger and more secured position) Some times – like in cases when a company is in a bad shape - there may be a need for more conditions in order to bring the company to regain its competitive edge. Suggestion: Conduct Current Reality Study (CRS) with the help of a senior TOC Practitioner www.tocpractice.com
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Practical Process To Achieve Operational Excellence Step One – Setting the Targets Step Two – Measurements and Reports Step Three – Decision Making Processes Step Four – Building the Buffers Step Five – Planning Step Six – Execution Control Step Seven – POOGI Step Eight – Market Offer www.tocpractice.com
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Step One Setting the Targets TARGET LEVEL
PERFORMANCE
TARGET LEVEL
There is a strong belief that the system can perform better up to the Target Level
CURRENT LEVEL
TIME THE PAST
www.tocpractice.com
TODAY
THE FUTURE
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Step One Setting the Targets Minimum Set of targets : The Bottom Line: Net Profit, EBIDTA, ROI etc. Service Levels: DDP and QLT for MTO Availability and Inventory Turns (MTA,DTA) On Time Completion, Budget , Lead Time (Projects)
Necessary Conditions: Cash flow Quality CSR – Corporate Social Responsibility www.tocpractice.com
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Step Two Measurements and Reports For all the key measurements and Necessary Conditions establish the way to measure, the reports, the frequency. For example: Daily Reports: Orders received, orders shipped and invoiced Daily progress of the sales process
Weekly reports Weekly summary of service levels Financial performance Cash Flow status and projection www.tocpractice.com
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Step Two Measurements and Reports Monthly Reports: All reports should summarize the last month and show the progress for all the preceding months (YTD – Year to Date), while comparing the actual results versus the targets that were set: Service level Financial performance Cash Flow Sales Pipeline and Backlog (received orders)
www.tocpractice.com
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Step Three Decision Making Processes Every decision made today by management has an impact on the future state of the system. Establish key Decision Making Processes based on the core concepts of TOC: The System Constraint(s) The five steps of Focusing T-I-OE for accepting/rejecting suggestions and solutions The six layers of resistance – for handling reservations and objections to suggestions and ideas www.tocpractice.com
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Step Three Decision Making Processes CONSTRAINTS – factors or elements that determine how much the system can accomplish Lift
The GAP
Block
THE PAST
www.tocpractice.com
TODAY
THE FUTURE
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Step Three Decision Making Processes The Five Focusing Steps 1. Identify (choose) the system’s constraint 2. Decide how to exploit the system’s constraint
3. Subordinate everything else to the above decision 4. Elevate the system’s constraint 5. If the constraint is broken go back to step one but do not allow Inertia to cause the system’s constraint www.tocpractice.com
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Step Three Decision Making Processes
Operational Measurements The Bridge The System
OE Operating Expenses
www.tocpractice.com
T
I Investment
Throughput
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Step Three Decision Making Processes 1. 2. 3.
Disagreement on what the problem is Disagreement with the direction of solutions Disagreement that the solution will bring the desired benefits
Yes, but… 4. Fear that the solution will result in negative consequences (Risks) 5. Obstacles to implementation seem to be impossible to overcome 6.
Application of the TOC Thinking Processes
6 Layers of Resistance to Change
Say “Yes” and do nothing
www.tocpractice.com
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Step Four Building the Buffers Flow & Focus Operational Excellence the TOC Way is achieved through its unique concept and techniques of using BUFFERS for managing the FLOW! There are several types of Buffers: Time Buffers – for MTO, PTO, Project Management Stock Buffers – for MTA, PTA, DTA and Retail Money Buffers – for cash and for Buffer activities Sales Buffers – for managing Sales Pipe-Line Money and Sales Buffer are special applications of stock Buffers www.tocpractice.com
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Step Four Building the Buffers Management / Workforce Project Buffer Information Flow Decisions Flow
Production/Operation Buffer
% Chain Complete
1
Information Flow
Process flow www.tocpractice.com
26th International Conference of the TOC Practitioners Alliance - TOCPA
Stock Buffers
Goal units 18
Steps Five-Six-Seven Managing the FLOW Managing the FLOW means: Planning Controlling the Execution of the plan Continuous Improvement – POOGI These are done with the use of the Buffers! The TOC detailed solutions for the logistical flows cover all the Injections that are necessary for managing the flows of the company. Usually, the first few injections provide immediate improvements while the entire set is required for operational excellence! www.tocpractice.com
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Step Five Planning Planning means: For Time Buffers – Determining the time to start an activity, such as Material Release, performing a task or initiating a purchasing order. Planning is done periodically. Dates are set in advance. For Stock Buffers – Planning is done dynamically based on the current status of the buffers. Planning triggers the actions for replenishing the buffers. Planning for Money and Sales Buffers are done the same way as Stock Buffers
www.tocpractice.com
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Step Six Execution Control Execution Control includes: Collecting feedback from the progress of activities of the flow. Assessing the Status of the Buffers based on the updated knowledge about the progress Assigning priorities to activities in accordance with the status of their corresponding buffers Taking Recovery Actions when Buffers are in RED (and definitely when in Black) Monitoring situations of inadequate buffer sizes Collecting data for Buffer Analysis ( for step 7) www.tocpractice.com
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Step Six Execution Control The essence of Buffer Management Managerial shift: From Explaining the Past to Predicting the Future PIVOT
TOC
THE PAST
www.tocpractice.com
TODAY
THE FUTURE
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Step Seven Continuous Improvement POOGI – Process of Ongoing Improvement Recoding the reasons for delays to the flow Reasons mean: “What is the system waiting for…” Analysis of the delay reasons Applying improvement processes, techniques and initiatives to improve the flow. This is the link of TOC to LEAN and Six-Sigma. Adjusting buffer sizes in accordance with the improved flow When needed – incorporating Capacity Management for critical resources www.tocpractice.com
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Steps One to Seven Summary The Seven Steps should build the Operational Excellence of the company. The market should be aware that the company is: Reliable Consistent Professional This is should be manifested through more orders, more sales and better bottom line. In any case – this is the time to explicitly move to step eight www.tocpractice.com
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Step Eight Market Offer Use the Operational Excellence in order to gain Competitive Edge in the market place. Competitive Edge can be achieved through developing a Market Offer that solves a significant problem of your customers in a way that is better to what your competitors provide (if at all). Identifying the opportunities and developing the offers are done with the help of the TOC Thinking Processes (TP). www.tocpractice.com
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Recommendations for the Leader of the System If you haven’t started to Implement TOC yet: Start the process in a gentle way: do your homework and build your plan before involving others. Engage a TOC consultant to help you to review your Strategic Plan (or your vision) and develop it into a realistic and practical Step one. Establish the critical factors and the key conditions for achieving the strategy. Start the recording of the measurements Learn for yourself how to USE T-I-OE for decision making Move to the implementation of Operational Excellence www.tocpractice.com
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